British Land Company PLC

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Asset Management

Proactively meeting customers' requirements

Concentrating on our customers' requirements and focusing our asset management on providing accommodation to best suit their business needs, we seek to capture occupational demand, maintaining high occupancy and rental income cash flow. This is achieved through appropriate tenancy changes, lease restructuring, initiating improvements by better design or configuration or planning use, refurbishments and redevelopment. Our deliberate focus on prime rather than secondary property has stood us in good stead and enabled us to respond flexibly to market circumstances.

Since 31 March 2008 we have exchanged agreements for 395 new lettings and lease renewals at overall 2.4% above the applicable ERV, generating increased rent of £26.1 million per annum.

Retail parks

At Queens Retail Park in Stafford, we created a new fashion line up in units that were vacant on our acquisition of the park (in March 2008). The sub-division and refurbishment of these units has resulted in five new lettings to Next, Brantano, Peacocks, New Look and Mothercare. The park is now fully let and trading well.

The refurbishment of units at Springfield Retail Park, Elgin, following achievement of a revised planning consent to Open A1, has enabled new lettings to Next, Peacocks and New Look - with our efforts achieving a near doubling of the rents.

Over 1 million sq ft of retail park lettings (included in the data above) have been concluded at 4% ahead of ERV, and rent reviews have taken place on 1.5 million sq ft of retail park space. New lettings are predominantly to household names, with major lettings or renewals to Arcadia/Bhs, Asda, Birthdays, Boots, Carpetright, Homestore & More, Mothercare and Toys R Us, in addition to those tenants mentioned above.

Shopping centres

At Meadowhall overall retailer performance continues to be good. New tenants at the Centre include Blue Inc, Molton Brown, Yo! Sushi, Hollister and Kurt Geiger. The former Namco Family Entertainment facility has now been reconfigured to create space for new restaurants in the Meadowhall Oasis including Zizzi, Coal and Frankie & Benny's.

At Bon Accord and St Nicholas Shopping Centre, Aberdeen, we have instigated a number of lease surrenders and reconfigured space to improve the retail mix. An improved fashion line-up has been achieved through a programme of asset management and leasing activity. At Bon Accord a new 50,000 sq ft unit has been developed for Next, alongside enlarged stores for River Island and Topshop. A £2 million refurbishment of St Nicholas has resulted in a reinvigoration of retailer interest, particularly fashion.

The recently completed St Stephen's Shopping Centre in Hull is now established as one of the main shopping and leisure destinations for the area. The recent opening of a large 20,000 sq ft Argos store together with earlier lettings including to Tesco, H&M, Next, Topshop, River Island, TK Maxx, Nando's and Reel Cinemas, have attracted increased numbers of shoppers. We continue to focus our asset management on further lettings and realising new commercialisation opportunities on the malls.

Superstores

Four extensions completed during the year of stores let to Tesco, creating an additional area of 50,300 sq ft and generating additional income of £1.1 million per annum.

During the year, we have also undertaken 11 reviews increasing rents by £2.7 million per annum. This represents a 23% increase on the previous passing rent, equivalent to 4.2% per annum.

London offices

We are continuing to invest in improving our major assets, preserving and enhancing income growth and potential.

The £12 million refurbishment at 338 Euston Road, Regent's Place of 20,000 sq ft of the offices over three floors, plus the common services and reception areas, was completed during the year. Two of the three floors have already been let at increased rents, the most recent at £58.50 per sq ft, emphasising the success of this project.

The scheme to improve and extend the entrance and circulation areas at 4 Triton Square, Regent's Place has also been completed. Also at Regent's Place, 47,000 sq ft of rent reviews were agreed at 350 Euston Road at an average of £56 per sq ft, 10% above ERV.

Public spaces across the Regent's Place estate are being upgraded, to be completed this year in conjunction with the Osnaburgh Street phase of development on the Estate. These works will provide improved pedestrian links, including a crossing over Euston Road to more easily connect with public transport. The improvements also include the creation of a new western entrance to the Estate, a community theatre, the planting of nearly 200 trees, new public seating, art installations and a re-branding for marketing and management of the Estate - all of which go towards improving the local environment, attracting occupiers and maintaining or improving rental values.

At Broadgate, 88% of the offices developed at 201 Bishopsgate have now been let. Lettings this year include 36,000 sq ft representing the entire 7th floor to Landesbank Baden-Württemberg and 15,500 sq ft to Alpari (UK) Ltd. In the Broadgate Tower, 48% of the offices completed earlier this year have now been let, with a further 16% (63,000 sq ft) under offer. Lettings have been concluded to serviced offices operator Regus who have taken 26,000 sq ft and will provide a useful facility for business at Broadgate. Reed Smith have taken up both 13,000 sq ft under an option plus a further 13,000 sq ft to reach total accommodation for them in the Tower of 168,000 sq ft, where they have fitted out the accommodation and moved in their 600 staff.

At 1 & 2 Broadgate, we took direct tenancies with UBS, ICAP and KBW in respect of the offices they occupy (originally under sub-lettings from Lehman Brothers), representing 78% of the £15.8 million rental income from the accommodation formerly let by us to Lehman.

At 4 Broadgate we have let a total of 55,000 sq ft of offices on flexible short term leases, pending our consideration of the redevelopment or refurbishment of this building. This gives us as landlord the ability to preserve our options and time to review the project while having the benefit of receiving significant contributions to the holding costs of the building. Also at Broadgate the rent review was settled with Deutsche Bank in respect of 185,000 sq ft at 1 Appold Street in line with ERV at £49 per sq ft.

The Estate is also being improved through selective surrenders and refurbishments such as at 6 Broadgate where 60,000 sq ft (23%) has been taken back and is planned to be refurbished; a further 112,000 sq ft (43%) is similarly to be taken back from Mitsubishi UFJ Securities International plc when they move together with The Bank of Tokyo-Mitsubishi UFJ, Ltd to our new development Ropemaker (after their fit-out of those offices).

We have completed works which have improved the links between the developments at 201 Bishopsgate and the Broadgate Tower so as to incorporate them fully into the existing Broadgate Estate. Paving and lighting improvements have been carried out on the principal pedestrian routes on the Estate from Liverpool Street Station. The Broadgate Plaza has also been completed, creating a fourth landscaped public space in the area between 201 Bishopsgate and the Broadgate Tower and a new amenity for our occupiers in Broadgate.

More than 80,000 sq ft of lettings and rent reviews of retail/leisure accommodation in the London offices portfolio also completed in the year, increasing rent by £630,000 per annum. Retail is an important element of our office investments, providing services to occupiers and enhancing our investment.

Residential

British Land also creates value from the residential elements of mixed use properties and developments, for example at Osnaburgh Street, Regent's Place, NW1. Our small team of residential asset managers deals with projects including the preparation and sale of assets acquired as part of wider commercial portfolios, refurbishment of central London residential elements of new developments, mixed use blocks, negotiation of leasehold extensions, and rent reviews on a small number of residential units that British Land retain. Similar asset management services are undertaken for third parties; at the year end residential assets valued at some £325 million were under management on behalf of external clients.

Customer Focus

Our ongoing focus on customer needs during the year has involved increased contact with occupiers on property management issues, proactive management of the performance of our managing agents, and identification of ways to provide better value for money from the service charge. In March 2009 we completed our third Occupier Survey. These bi-annual surveys act as an indicator to validate feedback we receive from our occupiers from our contact or regular meetings. We are pleased that we continue to make progress, building on earlier reports and improving occupier satisfaction, while recognising that there are areas where we need to make further efforts: 82% of our tenants rated British Land 'good' or 'excellent' as landlord.

Cost reduction is a major issue for our occupiers. In our retail portfolio we have been working with retailers to identify and achieve reductions in service charges. In conjunction with other owners we have developed a '10 point plan' to help find savings across all our retail investments. As a result we have already identified reductions in annual service charges of 15% on average across the retail portfolio, including a budgeted 20% service charge reduction at Meadowhall. In our office portfolio we have also embarked upon a service charge cost reduction programme, collaborating with occupiers to consult and plan how to achieve further savings.

We combine cost reductions with being at the forefront of the industry in providing an open and customer focused property management service. We were pleased to win recognition of our efforts by being awarded 'Best Service Charge Provider' for 2008 by the Property Managers Association (nominated by the major UK retailers).

In this difficult economic climate, the sector overall has seen a number of tenants falling into administration but, to date, we have not been materially adversely affected. This is due to a number of factors: our occupier-led strategy and good relationships with tenants; focus on owning prime assets in profitable trading destinations which are likely to be in most demand throughout the cycle; the earlier disposal of weaker trading properties; and, where possible, our anticipation of difficulties and adoption of contingency plans to re-let as quickly as possible space that becomes available.

At 31 March 2009 occupiers in administration represented only 1.8% of rents, including 1.4% from leases under negotiations for assignment or re-letting, or where the rent is guaranteed by a third party. During April 2009, two further retailers have gone into administration, with minimal impact on our portfolio, and total exposure remains at 1.8% of rents.

Occasionally tenant difficulties will provide an opportunity. For example, we had planned to take back a lease at a retail park from MFI to enable us to reconfigure the space and re-let to other retailers at higher rents. The failure of MFI hastened our plans but avoided the need for a compensatory payment to release the space. Part of the area involved has already been re-let to New Look.

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